Grid Dynamics Holdings, Inc.

Greetings and welcome to the Great Dynamics Holdings, Inc. First Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Lilia Chernova, Head of Investor Relations. Thank you. You may begin.

Good afternoon. Welcome to Grid Dynamics' first quarter 2021 earnings conference call. Before we begin, let me remind everyone that today's discussion will contain forward-looking statements based on our current assumptions, expectations, and beliefs, including our second quarter 2021 financial guidance, the growth of Grid Dynamics' business, our objectives, and business strategies, as well as other forward-looking statements. You can refer to the disclosure at the end of company's earnings press release and form 8K filed with the Securities and Exchange Commission today for information about forward-looking statements that will be made on this call. All statements made today reflect our current expectations only, and we undertake no obligation to update any of them to reflect the events that will occur after this call. You can learn more about the specific risk factors that could cause our results To differ materially from today's discussion in the risk factor section of the company's form 10-K filed on March 5, 2021, and in the subsequent periodic reports that the company filed with the SEC. During this call, we will discuss certain non-GAAP measures of our performance. GAAP to non-GAAP financial reconciliations and supplemental information are provided in the earnings press release and the 8-K filed with the SEC. This call is also available via webcast. You can find all the information I have just described in the Investor Relations section of Grid Dynamics website. Joining us on the call today are CEO Leonard Lischitz and CFO Anil Dharadla. Following their prepared remarks, we will open the call to your questions. With that, let me turn the call over to Leonard.

Thank you, Lily. Good afternoon, everyone, and thank you for joining us today. I'm excited to share my thoughts on how Green Dynamics is making strides across its business and highlight the progress we have made since we spoke with you two months ago. On the call today, I will provide highlights of our first quarter results, share with you what we are witnessing across our business on the demand front, and talk about the trends that are shaping our second quarter in 2021. When we spoke with you all in March, we provided commentary around the demand environment, both for the first quarter and the full year 2021, as well as highlighted reasons for our upbeat outlook. Today on the call, I'm happy to reiterate all the positive catalysts that we shared then, and furthermore, our strong first quarter results and guidance for the second quarter clearly indicates a robust demand environment where customers are actively seeking our services for strategic digital transformation projects across different industry verticals. Now, coming to the first quarter, I'm very pleased to report the highest revenue quarter in the history of great dynamics. Even after factoring out our recent acquisition of DAX, This was an all-time high quarter. In the first quarter, our revenue of $39.1 million included $6.5 million of revenues from docs, and it was higher than our guidance range of $35 to $36.6 million. Both docs and non-docs revenues exceeded our expectation as demand picked up across all our vertical industries. As I indicated last year, Q1-21 is an important milestone achieved. And this quarter, our revenue exceeded pre-COVID level of Q1 2020. There are many positive trends in this quarter. And I wanted to share with you some of the notable ones. In each of three months of the first quarter, our revenue were higher than our expectations. So at the end of January, we witnessed a significant pickup in customer activities as digital transformation initiatives took center stage. While there are several reasons for this, we believe a positive economic outlook, improving customer sentiment, and catch up in spending at some customers who held back in 2020 have been key reasons. Additionally, for many customers, digital transformation initiatives have elevated to become mandatory. Based on our customer engagements and interactions, we believe these positive trends will persist, leading us to be incrementally positive for the remainder of 2021. There has been an uptick in demand for talent across multiple skill sets. While there is something we witnessed last quarter with a greater demand for data science specialists and big data engineers, this quarter the demand spreads across a wide spectrum of engineering skill sets. Examples of these include front-end and back-end engineers, DevOps, and quality engineers as well. We've increased our focus on hiring, expanding our internship offerings, and training great dynamics engineers. During the first quarter, we added a total of 162 people over the fourth quarter of 2020, and our headcount reached 2,056 employees. Our workforce continues to expand offshore as we build dedicated offshore centers at some of our customer locations. We entered the first quarter with 88% of our workforce in offshore locations, up from 86% in the last quarter and 81% in the quarter a year ago. As we highlighted last quarter, a combination of continued focus on cost efficiencies, greater acceptance of remote work, and ability to staff and scale delivery teams quickly have been key factors. We expect the trend to reverse as we slowly return to normalcy in the United States and customers see greater collaboration with onshore presses. During the quarter, we added six new logos in our core organic business, with all of them contributing revenue in this quarter. Two were in TMT space, one in healthcare, one in services, one in the specialty retail, and one in CPG. As you all know, in December 2020, we acquired DAX, and as we highlighted, DAX customers tend to work the startups and mid-market customer base. During the quarter, we had a total of 184 customers, out of which 48 customers were part of Organic Great Dynamics. Revenues from our top five customers in the quarter was 50%. This was down from 64% of our revenues in the same quarter a year ago. The diversification of our customer revenues was largely driven by a combination of our continued success in renting new logos going deeper with existing customers in our recent acquisition of Dux. Within our top five clients, two are in the TMT space, one is in banking, one is CPG, and one is retail. During the quarter, we'll launch an accelerator in partnership with AWS. This partnership enables our customers to launch modern data platform based on Amazon's cloud and roll out advanced data analytics capability in short time frames. Customers deploying our accelerator can reduce implementation times from months to days. During the quarter, we had three customer wins across CPG and manufacturing markets. Now we're coming to some segment commentary. At 37% of our first quarter revenues, TMT continues to be our largest vertical, similar to last quarter, our largest TMT customers continue to focus on expanding offshore delivery offices with breed and end. That said, we see at those customers a return to revenue growth over the fourth quarter. Going forward, we continue to believe TMT will continue to be our largest vertical, and the focus will be complemented by acquisition of DAX, where roughly two-thirds of this revenue derived from the TMT industry vertical. At 22% of our first quarter revenue, CPG and manufacturing continued to show robust growth, both on the sequential and year-over-year basis. Underpinning this strong growth was our success at one of the largest global CPG brands, which became one of the largest customers of Green Dynamics in the first quarter. As we highlighted in our call in March, we entered 2021 with key design wins at this customer and expect to maintain strong momentum in 2021. At 23% of the first quarter revenue, retail business continued to witness growth over the last quarter. Within this segment, we witnessed e-commerce-friendly brands continue driving the growth in the quarter, while the brick-and-mortar department store continued to be a mixed bag. During this quarter, we delivered on some of the notable projects. We're a California-based enterprise search company offering artificial intelligence-powered search engine solutions to many of the world's largest brands. We assisted the company in improving its search process. Our solutions were in the area of full-text search, and we used semantic query parsing to improve the overall performance. You also expect the customer to deploy this offering across various industries. For a technology company in the field of computer accessibility, we helped to create a product that detects accessibility issues in mobile applications. It extends the product offering of the client line, which was until recently covering web only. The minimum valuable product was delivered in the record time of two months, align our customer to announce its release before a round of funding. In the broader context, the product will help bring the attention of companies to accessibility limitation in the application and make digital technology available to everyone. For any EMA-based online marketplace, we implemented a modern search engine based on open source technology to help overcoming the challenge of retrieving products of interest during the browsing experience. The platform has been developed, tuned, and made ready for go-live in a fast-paced schedule of only nine weeks. Discovering the right product is the most critical part of channeling users' buying behavior. With three dynamic search technologies, the company will be able to effectively attract, convert, and retain more and more business to come. For one of the largest U.S.-based manufacturing company, Green Dynamics architecture and engineering team developed a groundbreaking new concept of new lifestyle platform that was released to the public in Q1 2021. Green Dynamics assessed the market needs and brought to the client our versatile knowledge of the best practices in CPMG. It's a very successful start to the recent partnership. With that, let me turn the call over to Anil, who will discuss Q1 results in more details. Anil?

Thanks, Leonard. Good afternoon, everyone. Our first quarter revenue of $39.1 million exceeded our guidance range of $35 million to $36.5 million. and was up 30% on a sequential basis and 21% on a year-over-year basis. Excluding revenues from DOCS, which contributed $6.5 million, revenues in the first quarter of $32.6 million increased by 12% on a sequential basis and slightly up on year-over-year basis. The better-than-expected revenue in the quarter was driven by a pickup in demand across industry verticals. Similar to the last couple of quarters, our technology vertical was the largest vertical in the quarter. As Leonard pointed out, this was not only the highest quarterly revenue, but also the quarter that marked the company returning back to pre-COVID revenue levels. In the first quarter, our non-retail business, now representing 77% of revenues, was up 36% on a sequential basis and 85% on a year-over-year basis. During the quarter, our retail segment, representing 23% of our revenues, grew 14% on a sequential basis. The growth in the quarter was largely driven by our top e-commerce friendly retail client and to a lesser extent by others. In spite of a 14% sequential growth, retail was down 45% on a year-over-year basis. Our technology vertical represented 37% of our first quarter revenues, and grew 28% on a sequential basis and 43% on a year-over-year basis. Within this segment, some of our largest technology customers reverted to sequential growth over the fourth quarter as they ramped their offshore operations with us. Here are the details of the revenue mix of other segments. Our CPG and manufacturing represented 22% of our revenue in the first quarter, and grew 41% on a sequential basis and 300% on a year-over-year basis. As Leonard pointed out in his opening comments, the strength came from our engagements with the global CPG brand that is in the midst of ramping key digital transformation programs. Going forward, incremental programs combined with ramping of existing programs at this client make us bullish in this segment in 2021. Financial represented 9% of revenue and grew 14% on a sequential basis and declined 15% on a year-over-year basis. The sequential growth in the financial segment was driven by ramp and programs at a key financial customer that had witnessed decline in the last couple of quarters. And finally, the other segment represented 10% of our first quarter revenue and was up 103% on a sequential basis, largely from faster than expected ramps at some of our recent client wins. We exited the first quarter with a total headcount of 2,056 people, up from 1,894 in the fourth quarter of 2020, and up from 1,357 in the first quarter of 2020. The 9% sequential increase in headcount was largely a reflection of the improving demand environment that resulted in headcount increase across all our regions. At the end of the first quarter of 2021, our total US headcount was 253 people, or 12% of the company's total headcount, down from 14% in the fourth quarter and down from 19% in the year-ago quarter. Our non-US headcount, which we sometimes refer to as offshore, located in Central and Eastern Europe locations, was 1,803 people, or 88%. In the first quarter, revenues from our top five and top 10 customers were 50% and 67% respectively. During the same period a year ago, our top five and top 10 customer concentration was 64% and 86% respectively. The decline was driven by a combination of new logo ramp, continued industry diversification, and our recent acquisition of Docs. During the quarter, we had a total of 184 customers 48 from our organic business and the remaining 136 from our docs acquisition. Within our organic business, we had a total of 48 paying customers during the quarter, up from 43 in the fourth quarter and up from 37 in the first quarter of 2020. As a reminder, we only count the revenue generating customers in the quarter and do not include customers who were inactive during the quarter. Relative to the fourth quarter, we added six new logos, two in the technology segment, one in CPG, one in retail, and two in the other segment. Moving to the income statement and including our recent acquisition, our GAAP gross margin during the quarter was $15.3 million, or 39.2%, up from $12.3 million, or 40.7%, in the fourth quarter of 2020, and up from $9.8 million, or 30.2%, in the year-ago quarter. On a sequential basis, the decline in gross margin as a percentage was from a combination of factors that included headwinds from fewer working days, increased headcount costs from hiring, and a full quarter of our recent acquisition of DAX, which has operated at lower margins. On a non-GAAP basis, our gross margin was $15.4 million, or 39.5%, up from $12.4 million, or 41%, in the fourth quarter of 2020 and up from $11.5 million or 35% in the year-ago quarter. The sequential decline in the non-GAAP gross margin as a percentage was driven by the same factors which were highlighted earlier. Adjusted EBITDA during the quarter that excluded stock-based compensation, depreciation, amortization, transaction, and other related costs was $5.3 million or 13.4%, up from 4.1 million or 13.7% in the December quarter, and up from 3 million or 9.4% in the year-ago quarter. The slight sequential drop in EBITDA as a percentage of revenue was largely due to lower gross margins combined with higher operating expenses. Additionally, on the year-ago quarter, our business was impacted by the pandemic-related headwinds, resulting in lower levels of EBITDA both in terms of dollar amounts as well as percentage. Our gap net loss in the first quarter totaled $2.1 million or a loss of 4 cents based on a share count of 52 million shares compared to the fourth quarter loss of $4.7 million or a loss of 10 cents per share based on 50 million shares and a loss of $4.6 million or a loss of 16 cents per share based on 30 million shares in the year-ago quarter. The sequential decrease in GAAP net loss was a combination of factors that included higher revenue from a full quarter of docs and lower stock-based compensation expense. On a non-GAAP basis, in the first quarter, our non-GAAP net income was $3.1 million, or 5 cents per share based on 60 million diluted shares compared to the fourth quarter non-GAAP net income of $2.2 million or 4 cents per diluted share based on 55 million shares and $1.9 million or 5 cents per diluted share based on 34 million diluted shares in the year-ago quarter. On a non-GAAP basis, the increase from the fourth quarter was largely due to a full quarter of revenue contribution from docs. Our cash, cash equivalents and short-term investments total $100 million, down from $113 million on December 31st, 2020, and down from $121 million on March 31st, 2020. The sequential decline in the current quarter was largely due to tax withholding obligations related to issuance of shares in connection with vested awards. The year-over-year decline was primarily due to the acquisition of DOCS, which was paid in cash. Coming to the first quarter guidance, we expect revenues to be in the range of 40.5 million to 42 million. This includes 5.5 million in revenue contribution from our recent acquisition of DOCS. We expect our adjusted EBITDA in the second quarter to be in the range of $6 million to $6.3 million. For the full year 2021, we expect our revenues to be at least $165 million. This includes a contribution of $23 million from docs. For the second quarter, we expect our basic share count to be in the 54 to 55 million range, and our diluted share count to be in the 62 to 63 million range. That concludes my prepared remarks. Operator, we are now ready to take questions.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to move your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for your questions. Our first question comes from the line of Mayank Tandon with Needham and Company. Please proceed with your question.

Thank you. Good evening. Hi, Leonard, Anil, and Lily. Congrats on the quarter. I wanted to start with just the guidance. Obviously, very strong momentum coming out of 1Q. The 2Q guidance looks good, and the full year does as well. It does call for a pretty sharp deceleration in the second half, if I'm doing my math right. Just wanted to get a sense if that's just being conservative at this juncture in the year or just something else that is impacting the second half outlook relative to the strong momentum in the first half.

Right. Mike, thank you very much for your question. Look, I mean, we just started the year. If you see our guidances, at least, that dollar amount, right? And obviously our first quarter was strong. We'll come back and give you an update, but based on the business momentum and just the tone of the business, you know, we feel pretty positive for 2021. Look, I mean, this is our best guesstimate right now. As we said, we'll come back in three months and obviously hopefully give some more positive news.

Got it. That's understandable.

This is Leonard. Just very small color in it. As you know, we had a very good quarter last year. This quarter is even better. We have a good visibility in Q2, obviously, but we still remain to be a little bit more conservative just to make sure we get all the facts. But you're absolutely right. There's no immediate or seen deceleration by all means.

Got it. That's very helpful. Then just as a quick follow-up, I wanted to get some color on the supply side of the equation. There have been some concerns expressed by other IT services companies in terms of being able to attract enough talent. There's clearly a war for digital talent, pressure on attrition and wage inflation. So any perspective on that would also be very helpful, how you're managing some of these headwinds as you meet increasing demand.

Sure. Well, you actually asked two or three questions, right? So let's just make sure we'll have other people chance to ask the same question, because I suspect there'll be more people talking about the same, just the high level, first of all, on the talent. You're right. There's always a pressure about, you know, getting right people to the company. And, you know, we are getting more and more demand on a variety of skill sets coming through existing and new customers. To some extent, we've been prepared for that. We build a strong pipeline, come from the internship programs, the partnerships, spending with people, additional hiring. Also, what I hear is some other Companies talk about the projects. One of the benefits that our model of land and expand helps is because we start many projects with a handful of good people, and then we build on top of it. So I believe the scalability definitely, even though it's an industry challenge, Rhythm is well-prepared.

Great. Thank you so much.

Thank you. Our next question comes from the line of Maggie Nolan with William Blair. Please proceed with your question.

Thanks. Congrats on the results. I'm wondering on the EBITDA margin, what's holding you back from or creating uncertainty in the EBITDA margin guidance for the full year? And is something in the low teen similar to Q1 and your Q2 guide a reasonable expectation for the full year?

Yeah, thanks a lot for the question, Maggie. So if you look at the full year, right, I mean, there are a couple of moving parts there. Number one is that we've made an acquisition in docs, right? And there are some levels of investments and programs that we're looking at. So the focus is around there. Second thing is that, as you know, we've been investing in programs within the company, whether it's Salesforce, whether it's building up new lines of business. So there's that element there. And the third thing is that, look, we still have a little bit amount of retail business, right? So some of the moving parts there. As we proceed with every quarter, I think things are going to get better. We will come to some point where will give out more longer-term visibility on the EBITDA. But, you know, we're taking one step at a time, and, you know, at the right amount, we'll revert to providing a little bit more color.

And, Miguel, hi. There's a little bit more color in that. Similar to what Mayan guessed about acceleration, we project the positive trend momentum on our margins as well. At the same time, we're a bit cautious about some of the trends which may not be favorable to the industry, not to great dynamics. And while I'm very optimistic about the next steps beyond the Q2 and information we have guides us to the very promising 2021, we're just trying to be a bit rational how we can pace ourselves. As you recall, when we got into the eye of the storm last year, I made a comment that, you know, despite all these, you know, headwinds, I'm going to hit the full recovery and revenue in Q1. And at that time, it was really far-fetched for most of the guys. We steered the ship, and now we are ahead of the game. And then we're talking one of those, you know, quarterly discussion about when we're going to get back to some EBITDA margins. And I mentioned let's wait for a Q2 result. So let's wait and see how the things will turn out.

Okay, thanks for that. And then when you think about your verticals, obviously there was good growth in the other segments. Is there anything that, you know, sub-verticals within there that are good growth drivers could be a breakout that we should keep an eye on? And what does it take to reinvigorate the financial services segment as well? Thank you.

Yeah. So, Maggie, you're right. There are a couple of, you know, certain dynamics happening with certain customers. They're not getting to a point where, you know, we want to break it out as a separate vertical, largely because they're one-off. But these are related to some of the design wins or program wins or customer wins we have had over the past year. you know, 12 months. We have, you know, a particular customer in online delivery of groceries, and we have another customer in the, you know, the closest I can come in the food delivery, you know, business. So, yes, there are a couple of those things, and with time, we'll break it out. On the financial, you know, if you look at our business, we don't have as many customers perhaps as we have with the TMT and other things. So these handful of customers, when they move, they have a meaningful impact. We saw with this one particular customer reverting back to program growth, and that impacted us. As you may recall, Last quarter, we even talked about a global insurance customer. So we're trying to diversify within different subsegments of the financial industry.

Yes, and I think it's a good overall review, but other things which I want to bring attention to is that some of green dynamics accelerators, solutions, integrated practices coming from more traditional industries start accelerating with the digital expansion during the COVID time into other verticals, and the demand for what grid was able to deliver starts spreading across multiple verticals. I think, Anil, it's fair to say it's a little bit early to call the subgroups, but to summarize, they're very much synchronous in terms of our horizontal capabilities just to move into the new fields.

Okay. Thanks, guys.

Thanks.

Thank you. Our next question comes from the line of Joseph Vasey with Canaccord. Please proceed with your question.

Hey, guys. Good afternoon and good results. I thought maybe we'd talk, you know, first on that large CPG customer that you called out. I know it's a fast-growth customer for you right now. Is that customer still growing or, you know, how do you see the evolution, you know, in terms of, you know, revenue contribution from that customer playing out over time? And then I'll have a couple follow-ups.

It's a very good question, Joe. I believe what you're really asking is it kind of a temporary ramp up or it's a longer-term growth? Well, there are a couple aspects which we're currently in a joint work. We're very proud to be not just the implementation partner but having it at the table in a variety of the roadmaps and a new innovation which this giant CPG customer is demanding, which goes into the areas of business which we currently are not present, as well as some of the global international opportunities jointly with this customer. So, you know, I wouldn't have this, you know, the magic crystal ball to say how and when this, you know, the acceleration will continue, but we definitely see the continuous demand And based on my expectation, this customer will continue to grow.

That's helpful, Leonard. And then on those six new logo wins and in general, kind of when you look at the sales pipeline, you know, what are you seeing in terms of, you know, sizes of enterprises you're engaging with? Are they staying about the same? Are they growing? You know, do these six new logos kind of have that? capability to become top customers over time or any call you can provide there would be helpful.

Sure. Sure. Um, so, um, first of all, as, um, I knew eloquently mentioned, we only named the logos, which we haven't just signed the contract with, but generated revenue. So hopefully, uh, by the same time next quarter, we'll give you even more color. And for now, I believe it's fair. It's my idea not to talk something that we don't have money in the bank yet. So these six specific customers, I would say they come from the mid to upper range. I wouldn't call any one of them to be like a super giant at this point. However, what was very encouraging, some of the customers which we're previously engaged with start picking up in Q1 to the level where we would be more comfortable to add them to the top tier in the second half of this year. Also, some of the contracts we just signed, again, without revenue yet, we see a huge potential to be in also top 10. So two parts. The ones we talked, six, they probably need to uprange. Some of the guys we just expanded on. I have a very high expectation for the second half of the year to come.

Got it. Thanks, Leonard. And then maybe I guess I could probably do the math, but, Anil, you know, what do you have built into the guide for docs growth rate this year, or are you being conservative there? Thanks a lot, guys.

Yeah. So, look, I mean, as you see, you know, we had – on the docs front, we haven't changed a lot. We provided everyone a snapshot of docs. We're in the burnout period right now. We're slowly integrating the company, both from a sales and delivery point of view. So we've taken a little bit conservative approach as we integrate, as we understand this company a little better. So, we have kept the docs numbers, at least on our outquarter, same. And we'll just update you. So, yes, at this stage, we've just taken that approach.

Thanks much, Anil. Thanks.

Thank you. Our next question comes from the line of Brian Bergen with Cowan & Company. Please proceed with your question.

Good afternoon. Thank you. Wanted to follow up on the new engagements and the new accounts. How would you characterize the speed of the project activity among the new customers. I'm curious if there's been any notable shift in the project ramp trajectory of the new clients relative to what you had seen historically.

All right. Thanks, Brian. You always ask a philosophical question with a pragmatic outcome. So, it's all definition about what new customer is. As you know, when we just acquire a brand new customer, most of the time it's still landed in expense. I assume you more refer to the customers we captured in the recent quarters and how we expand them. From that perspective, there's been a significant acceleration on expansion and demand. And the reason I'm saying is it's not just that you see on the percentages. I mean, I know I mentioned to you that, you know, percentage of contributions from top five to top 10 are reduced, but it's also on a, versatility of the projects you know what we are able to do which we have not been probably as successful in the past is shift and expand beyond their regional area of engagement with a higher speed and part of it relates to the uh what traditional businesses like you know specialization in uh in the cloud migration automation a lot of related to the data analysis data analytics modern world uh demand for you know the machine learning specializations our introduction of a broader pod based uh solutions in our case we're bringing the teams to engage a new project as we get with the customers so i would say that's actually a feeding momentum for us to look comfortable in the future without overly relying on just a few top clients, which we may have seen the case in the past.

Okay.

Okay, that's helpful.

And then on traditional retail, so in the context of just the reopening momentum in the U.S., how have your conversations with the brick-and-mortar customers, some of the legacy ones, how have those evolved over the last two months just given the relative improvement in their business prospects? Is there anything happening there, anything built in?

Yeah, so there is, I would say, a little bit of a phenomenon which you picked up. In the last six weeks, we've only started getting quite a bit more demand with those two guys, especially one of the two guys who departed from us that were irrational in March last year, right? So, I mean, we're... able and willing to support them. Some of the smaller guys, more focused customers, they never stopped investing with them. But I do see a pickup. Now, being conservative on the whole brick and mortar stuff, it's even more e-commerce friendly. Retail is coming to the plate. We did not project as much growth from these guys because we want to see the machine is deleting, right? But I'm fully with you. Last six weeks, we get a couple of very, very strong demands from the brick-and-mortar retails. But that's on the top of what we already report.

Okay, great. Thank you. Thanks, Brian.

Thank you. Once again, as a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. Our next question comes from the line of Josh Ziegler with Cantor Fitzgerald. Please proceed with your question.

Hi, guys, and congrats on the quarter. Would you please provide any sort of progress on the sales build-out and productivity with Salesforce?

All right. Productivity of Salesforce. So it's the first time we've done it, so welcome. Welcome to the crew. We have been reporting to the investor community in the past several quarters our continuous investment in the sales force. We're still in the progress. We are able to capture some senior sales experience people with a good Rolodex, and we continue to close some of them. We're very selective in terms of how we expand on the front of the senior relations, especially in time of COVID, but it's an investment. We also accelerated a marketing touch. We improved SEOs, a direct marketing campaign. You know, our webinars are doing marvelous. So we also combined the, I would say, the Salesforce expansion with a, improvement on existing customer communication as well. We find that actually there's some feedback which some of the really interesting clients of the large caliber reach out to Geodynamics almost cold. So I would say the full investment recovery or ROI from the sales course will come a little bit later this year with more personal touch. But I have to say that even this Q1 from the funnel going forward has been promising.

Great. That's very helpful. Thank you. Could you also please provide an update on your capital allocation? You know, what are you seeing in the market regarding potential future acquisitions?

Oh, you want to know what's out taking acquisitions? Well, I have to say one thing is, It's a great market for both acquirers and acquisition companies. Grid Dynamics has been stating quite, you know, continuously that we look at the new regions, you know, new technology expansion and capabilities. We closed one deal just December. Obviously, we are going to have more great opportunities for Grid Dynamics Some of them you may have picked up that we recently filed, S3, Shell, to show that we'll be doing some of the fundraising in due time. And that tells you that appetite grows for us as we see more and more fit for grid dynamics across multiple fronts.

Great. Thank you very much. Thank you.

Thank you. We have reached the end of our question and answer session. I'd like to turn the floor back over to Mr. Lifshitz for any closing remarks.

Thank you, everybody, for joining us on the call today. Our first quarter results were strong as we executed well against our guidance, and I'm proud of Green Dynamics' entire team for their continued hard work toward achieving the goals. The demand environment is robust. Customers continue to prioritize their digital transformation initiatives, and we are working very hard to ensure we keep up with the demand of talent. Our strong comeback from the second half of 2020 onwards is a testament of great Dynamics' ability to quickly adapt our customer needs and our core strengths and capabilities are not tied to any specific industry vertical. We start 2021 with incremental confidence, and we look forward to giving you a business update in three months. Thank you very much.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.